ISIS advance spells opportunity for Kurdistan and foreign oil giants

Iraqi officials reported on Thursday that the Kurdistan Regional Government had begun pumping oil from two oil fields near the city of Kirkuk. The city itself, which has long been a site of contention between the Baghdad government and the KRG, fell under Kurdish control after Iraqi Army units withdrew last month. Since then, the Peshmerga—Kurdistan’s well-established paramilitary force—has provided security in and around Kirkuk, and deterred ISIS-aligned forces from approaching the area. Two of the area’s three oil fields, which had previously been operated by the Iraqi state oil company, came under Kurdish control a week ago (the area’s third field, Khurmala, has been controlled by the KRG for several years).

The Iraqi official told Reuters by telephone from Baghdad the Kurdish region had started to pump crude from one of the Kirkuk domes to the Khurmala dome, out of which the Kurdish pipeline runs, using an existing connection.

“They are using a pipeline which was originally used to send crude from (Kurdistan), but they have now reversed it (to use it by the Kurdish region),” the official said, estimating the quantity at around 20,000-25,000 barrels of oil per day.”

Kurdish sovereignty asserted
With de facto control of Kirkuk established, KRG officials say they plan to hold a referendum, through which local residents will decide whether to formally join Kurdistan. Until then, the KRG plans to pump as much oil as it can from the Kirkuk fields into facilities deeper inside the autonomous region. As a KRG spokesperson told Bloomberg News, “‘The KRG can export Kirkuk oil, the same way as it exports the region’s crude’ from current KRG-administered fields.”

The regional government’s right to sell its own oil abroad has been fiercely contested by the Baghdad government for years, just as the KRG has opposed Baghdad’s right to negotiate deals with foreign oil companies without local consent. In January, the central government threatened to sue any foreign company that purchased KRG crude (KRG recently issued a counter-threat to sue anyone who buys oil from Baghdad without paying a percentage to KRG), but sales of oil piped from Kurdistan to Turkey’s Ceyhan facility have gone ahead since then. Even under ideal conditions, Prime Minister Nouri al-Maliki would be hard pressed to wrest control of Kirkuk from the Kurds; however the current conflict between ISIS and the Iraqi state plays out, it has demonstrated clearly that Iraq’s military is incapable of maintaining the state’s sovereignty and territorial control by force.

New deals on the horizon
Though several prominent foreign oil companies have shown an interest in the Kirkuk fields, al-Maliki’s government had been operating them itself until ISIS sabotaged the export pipeline. Baghdad was close to signing a deal with BP for one of the fields in late 2013, and had received a bid from ConocoPhillips for the other, but ultimately rejected both deals in hopes of attracting higher offers. Kurdistan has every reason to look for a deal as soon as possible; without major investments and industry expertise, the fields will continue to produce at only a fraction of their potential. Meanwhile, Baghdad has cut Kurdistan’s civil servants out of its annual budget, leaving the KRG desperate for a cash injection.

One foot out the door
Kurdish officials and activists have flirted with the idea of secession since the post-Saddam Iraqi state was first established. Difficulties exploiting the region’s oil wealth, the threat of war with al-Maliki, and international pressure in favor of unity have all served to dampen calls for independence. But the apparent collapse of Iraq’s army in the face of ISIS, and a growing recognition in the international community that Kurdistan is far more stable and functional than the rest of Iraq, have made independence more attractive. Foreign investors also see KRG as a more promising partner than Baghdad has been, and many would likely jump at the chance to get in on the ground floor of a new petro-state. The Kirkuk fields would sweeten the prospect even further. In this most unpredictable part of the world, Kurdish independence is starting to seem almost inevitable.

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